Economists urge careful response to China's law

The government should respond cautiously to the passage of China's "anti-secession" law as far as the nation's economy is concerned, pundits said yesterday.

Market watchers said it will be hard to forecast developments in the local stock and currency markets until after China's reaction to a planned demonstration by Taiwan on March 26 is known.

The Democratic Progressive Party, the Taiwan Solidarity Union and pro-independence groups plan to launch a rally on March 26 to protest the passage of China's law. President Chen Shui-bian (陳水扁) last week called for 1 million people to join the march.

Taiwan's economy has become increasingly dependent on China in the recent years, with the country becoming Taiwan's largest trading partner last year. Bilateral trade across the Taiwan Strait, including transactions made through Hong Kong, reached US$82.61 billion last year, a 32.27 percent jump from the previous year, according to statistics from the Ministry of Economic Affairs.

The ministry approved US$6.94 billion of Taiwanese investment in China last year, but with about 2 million Taiwanese people doing business in China now, it is estimated that the real China-bound investment figure far exceeds official statistics.

"The law will not stop Taiwanese businesspeople from doing business in the lucrative Chinese market, but the short-term impact on the financial market is unpredictable," Steve Lin (林祖嘉), an economics professor at National Chengchi University, said in a telephone interview yesterday.

Minister of Economic Affairs Ho Mei-yueh (何美玥) said the government will not reverse current cross-strait business policies in response to the law's passage. But the ministry will consider slowing plans to grant permission to certain high-tech or crucial industries to invest in China, Ho said on Monday.

The Council for Economic Planning and Development (CEPD) also expressed concern over the law, suggesting the government carefully review high-tech investment projects in China.

"It is reasonable to do so in terms of national security and industry competitiveness," CEPD vice chairman Thomas Yeh (葉明峰) said on Monday.

Chu Yun-peng (朱雲鵬), head of National Central University's Research Center for Taiwan Economic Development, suggested the government respond carefully.

"If the government reacts to the issue irrationally, the political storm will further negatively impact the nation's financial markets and economic development," Chu said.